This summer I was lucky enough to spend my holidays travelling around Turkey. The trip included an afternoon clambering over the imposing walls of Rumeli Castle, on the European shore of the Bosphorus just outside Istanbul. Few places afford a better sense of the sheer scale of human economic activity – digging stuff up, making stuff, buying and selling stuff, moving stuff around the world – than here, overlooking a strait through which 50,000 vessels pass every year.
But this story could be entering a significant new chapter. Beginning back in about 2004-06, some indicators of global trading have levelled off after decades of almost non-stop growth. The opening article in our special report looks at the evidence of these changes and speculates about some of the reasons for them.
It seems that a number of economic factors are converging to change trading patterns: China is moving up the value chain, taking its workers’ wages with it; that means labour in places like Mexico and Poland, and even the southern US, looks more competitive than it has for years; along with improvements in robotics and the US’s shale revolution, powerful forces are pushing corporates to ‘near-shore’ and even ‘re-shore’ manufacturing. We also look more closely at implications for investment in shipping and the logistics of trade, as well as the 30 year-old technology of 3D printing, now coming into its own as perhaps the ultimate form of supply-chain contraction.
But as our opening article discovers, things are changing not just because of the brutal economics of fuel and unit labour costs. More and more companies are recognising the advantages of shorter supply chains for faster responsiveness, better quality control and more effective monitoring of the environmental, social and governance risks that lurk in those supply chains – another issue we explore in more depth later in the report.
These developments could represent the end of the post-war macroeconomic model, in which Americans consumed the world’s goods in return for the world’s reserve currency. We ask what the consequences are, for a world so dependent on US dollar liquidity, of a more self-sufficient US running a persistent current account surplus.
Some of this is already influencing pension funds’ investment decisions. Patrick Groenendijk, CIO at Pensioenfonds Vervoer, says that his fund is buying more equities in this month’s On the Record interview. “It is all about the beta, especially as the US has become so much more competitive versus China on the back of the weaker dollar and developments in commodity markets,” he says. “A lot of manufacturing is returning to the US.”
But in terms of strategy, that is just the beginning. The themes in this month’s special report potentially touch every corner of all our portfolios – indeed, every corner of that great epic that is human economic activity. Now is a good time to start thinking about them.